Buy-to-let (BTL) mortgage rates are continuing to fall, but they remain considerably higher than a couple of years ago.
This means landlords due to remortgage will face much higher repayments, and investors might think twice before expanding their portfolios.
Here, Which? explains what's happening to BTL rates and reveals the cheapest deals currently on the market.
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What's happening to buy-to-let mortgages?
Buy-to-let mortgage rates are now at the lowest levels since September 2022, when the cost of mortgages soared after the government's mini-Budget.
A period of high inflation resulted in a series of hikes to the Bank of England's base rate, culminating in average buy-to-let rates peaking at 6.79% in August 2023.
This month, the average rate has fallen to 5.5%. This is good news for borrowers, but this figure remains much higher than the 3.06% recorded two years ago, in Februrary 2022.
The graph below shows what's happened to fixed-rate BTL mortgage rates over the past year.
- Find out more: discover how rate changes could affect you with our mortgage repayment calculator
Will buy-to-let rates get cheaper?
The base rate has stabilised in recent months, giving lenders the confidence to reduce their rates slightly.
There are hopes that the base rate will fall later this year as the Bank of England closes in on its target of bringing inflation down to 2%.
A fall would likely result in lenders reducing their mortgage rates further.
In the meantime, however, any significant price drops seem unlikely. The next base rate announcement takes place on 21 March.
- Find out more:loan to value (LTV) calculator - calculate the LTV percentage you'll need for your mortgage
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Best rates on buy-to-let mortgages
There are currently around 2,400 BTL mortgages on the market. Most are available to landlords with deposits of at least 25%, though some higher loan-to-value deals are available.
Looking at average rates gives us a general idea of what's happening in the market, but when you're taking out a mortgage you'll want to get the cheapest deal you can.
The tables show the lowest initial rates currently available on two and five-year fixed-rate buy-to-let mortgages.
As you can see, these rates are significantly more attractive, but there are drawbacks. The cheapest deals here come with substantial up-front fees, which you'll need to factor in when comparing overall costs.
For example, the lowest-rate 60% mortgage has a fee of 3% of the amount you borrow, so if you borrow £200,000, you'll need to pay a fee of £6,000.
Fee-free BTL mortgages are uncommon, but some deals do come with lower up-front fees of around £999-£1,500.
Two-year fixes
| Loan-to-value | Lender | Initial rate | Revert rate | Fees |
|---|---|---|---|---|
| 60% | The Mortgage Works | 3.69% | 8.49% | 3% of the mortgage |
| 75% | The Mortgage Works | 3.79% | 8.99% | 3% of the mortgage |
| 80% | Molo Finance | 4.65% | 7.94% | 4.5% of the mortgage |
Source: Moneyfacts. Rates correct as of 29 February 2024
Five-year fixes
| Loan-to-value | Lender | Initial rate | Revert rate | Fees |
|---|---|---|---|---|
| 60% | The Mortgage Works | 3.99% | 8.49% | 3% of the mortgage |
| 75% | The Mortgage Works | 4.04% | 8.99% | 3% of the mortgage |
| 80% | Newcastle Building Society | 4.75% | 6.94% | £999 |
Source: Moneyfacts. Rates correct as of 29 February 2024
Are landlords selling up or staying in the game?
Landlords have sold more properties than they've bought every year since 2016, according to data from the estate agent Hamptons.
The sell-off was sparked by changes to mortgage interest tax relief, which significantly cut profits for many buy-to-let investors. Indeed, data from Savills shows landlords profits hit their lowest levels since 2007 last year.
Landlords who are remaining in the market are increasingly using limited companies for their portfolio, with around 50,000 buy-to-let companies set up in 2023.
Landlords using company structures can offset 100% of their mortgage interest against their profits and pay corporation tax rather than income tax. However, mortgage rates for limited companies can be significantly more expensive.
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Things landlords need to know in 2024
The last few years have been a tumultuous time for the rented sector, and 2024 is likely to spring further challenges.
The Renters Reform Bill could pass into law before the end of 2024. This will provide greater protections for tenants over rent increases and dispute resolution, but the long-planned abolition of Section 21 no-fault evictions has been delayed.
Landlords also face uncertainty over future energy reforms, after the government recently scrapped its plans to make all rented properties achieve Energy Performance Certificate ratings of C.
See our full story on 11 things landlords need to know in 2024 to find out more about the key upcoming changes.
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